KU HIU YANG HAYLEY v. YANG LI

HCMP 666/2021

[2022] HKCFI 1051

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.666 OF 2021

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BETWEEN

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JUDGMENT

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1.  This is a vendor purchaser summons dated 13 May 2021 issued under section 12 of the Conveyancing and Property Ordinance, Cap 219 (“the CPO”) by Ku Hiu Yang Hayley (“the plaintiff”), the vendor of a property situated in Harbour Place, Kowloon (“the property”) against Yang Li (“the defendant”). At the conclusion of the hearing, judgment was reserved which I now give.

Background

2.  Yam Hoi Wai (“Yam”) purchased the property in 2009 with a mortgage from the Hang Seng Bank (“the HSB mortgage”). Subsequently he obtained a legal charge from Future Best (Hong Kong) Limited (“the FB charge”) and the 3^rd legal charge from GMF Finance Limited (“the GMF charge”).

3.  GMF obtained a monetary and possession court order on 13 November 2014 (“the Order”). §3 of the Order provided that upon Yam paying to GMF the money ordered to be paid and secured by the 3^rd legal charge, GMF (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do redeliver to Yam possession of the property and to release the security constituted by the 3^rd legal charge.

(a) The 2015 transaction

4.  By a provisional agreement dated 26 February 2015, the plaintiff agreed to purchase the property from GMF.

5.  A draft undertaking letter dated 13 April 2015 (“the 13 April letter”) was faxed by the plaintiff’s solicitors, Messrs ST Poon & Wong (“STPW”) in the afternoon of 15 April 2015 to GMF’s solicitors, Messrs Philip TF Wong & Co (“PTFW”). It required releases/discharges of all the charges listed in Schedule II to the draft undertaking letter (“the Schedule II charges”) which included the GMF charge.

6.  Later that same evening, PTFW gave instructions by letter (“the 15 April letter”) to STPW for split cheques in favour of HSB, FB and GMF being “redemption money” which letter was faxed together with a marked up copy of the draft undertaking letter.

7.  Lau Kin Wing Benny (“Mr Lau”) of STPW, the plaintiff’s solicitor in these proceedings, also acted for the plaintiff in the purchase from GMF.

8.  On 16 April 2015, the completion date of the 2015 transaction, (a) STPW sent over an assignment and the requested cheques as “redemption money”; (b) HSB, FB and GMF respectively duly executed receipts on discharge; and (c) in pursuance of its power of sale under the GMF charge, GMF assigned the property to the plaintiff.

(b) The 2021 transaction

9.  The plaintiff and the defendant entered into a provisional agreement for the sale and purchase of the property on 14 February 2021 and the formal agreement on 1 March 2021 (“the Agreement”).

10.  On 4 March 2021, the plaintiff’s solicitors STPW sent the title deeds and documents of the property to Messrs Katherine YW Or & Co (“KYWO”), the defendant’s solicitors.

11.  The following events then took place:

(a) on 12 March 2021, KYWO raised a series of requisitions regarding the receipt on the discharge executed by GMF (“the Discharge”) since upon payment of the redemption money and execution of the Discharge, prima facie, GMF could no longer exercise any power of sale under the GMF charge and could not pass title to the plaintiff;

(b) on 22 March 2021, STPW replied to those requisitions alleging that GMF had executed the Discharge but which was unnecessary and had no effect on title;

(c) when KYWO renewed its requisitions, on 1 April 2021, STPW asserted that the sale to the plaintiff was pursuant to the mortgagee’s power of sale, repeated that the Discharge was “clearly a mistake”, that the “Discharge was merely additionally executed after[1] the mortgagee’s Assignment as a kind of, say double security”, that it did not reflect “the common intention of the parties” and that equity should “treat the mistake deemed to be rectified[2]”;

(d) on 8 April 2021, STPW sent a statutory declaration made by Mr Lau reiterating the matters set out in the 1 April 2021 letter and emphasising that the Discharge was a mistake;

(e) on 13 April 2021, after highlighting problems with the statutory declaration (in that Mr Lau had no personal knowledge of the matter as (i) the Discharge was not executed by the plaintiff but by Ho Shiu Lun Jeffrey of GMF (“Mr Ho”), and (ii) it was witnessed by Lam Kwun Hon (“Mr Lam”) of PTFW and not Mr Lau,) KYWO suggested that a court order be obtained declaring the Discharge null and void;

(f) STPW disagreed, maintaining their position that all requisitions had been duly answered; and

(g) on 16 April 2021, KYWO informed STPW of its position that a court order or a written confirmation by GMF be obtained.

12.  KYWO rescinded the Agreement on 21 April 2021 and demanded the return of the initial and further deposit.

13.  On 27 April 2021 STPW rescinded the Agreement and forfeited the deposit on the basis that the defendant was in breach.

14.  The plaintiff then took out this originating summons on 13 May 2021 seeking various declarations and other relief which is opposed by the defendant who, in turn counter claims for relief set out in paragraph 2 of the defendant’s affirmation dated 9 June 2021.

15.  It is common ground that a vendor has the distinct duties to prove and give good title to the property. The plaintiff must show that it was able to give good title to the property on completion; and that the requisitions had been satisfactorily answered.

Whether the Discharge took effect

16.  Both the Discharge and the Assignment are dated 16 April 2015 and registered at the Land Registry. The question that arises is whether the Discharge took effect. If the Discharge was executed prior to the execution of the Assignment, the Discharge would have discharged the GMF charge rendering it impossible for GMF to exercise its power of sale as mortgagee. The order of execution of those 2 instruments is therefore critical.

17.  Mr Kenneth CL Chan, counsel for the plaintiff, emphasised that the Assignment to the plaintiff was pursuant to GMF’s power of sale under the GMF charge.

18.  The plaintiff’s submissions may be summarised as follows: (a) the Assignment and the Discharge formed “a composite transaction” for the purposes of the presumption that applies where both documents were executed on the same day, the parties’ mutual intention is clear and the order of execution is relevant, there is a presumption that they would have been executed in the correct order so as to give effect to that intention; and (b) the Discharge was a mistake.

(a) The composite transaction and presumption point

19.  This was raised in the plaintiff’s reply submissions after Mr Chan was instructed in place of counsel who had filed the plaintiff’s skeleton submissions. It was submitted that the sale by GMF was in exercise of its powers of sale as mortgagee. Based on the parties’ mutual or common intention at the time that the legal estate should vest in the plaintiff with all the encumbrances discharged, the Assignment and the Discharge went in tandem to accomplish that mutual intention.

20.  The plaintiff placed reliance on the following principle stated in Lewison on The Interpretation of Contracts, 7^th Ed at [603]:

“Where 2 or more documents are executed on the same day as part of a composite transaction, and the order of execution is relevant, it will be assumed that they were executed in the correct order.”

21.  Lewison referred to several authorities in support of the presumption. In In re Kilnoore Limited (in liquidation) Unidare Plc v Cohen [2006] Ch 489 it was held (at §19) that where parties to a transaction involving the execution of multiple documents and intend them to be executed in a particular order which is necessary to give effect to the intended transaction, the court should be ready to presume that they were executed in the correct order to give effect to the transaction.

22.  Gartside v Silkstone and Dodworth Coal and Iron Co (1882) 21 Ch D 762, a 19^th century decision concerned the order of priority of debentures to which the company’s seal was affixed. However, in that case there was evidence that the seal was affixed to the debentures in the order of the numbers on them, beginning with the earliest.

23.  The expression ‘composite transaction’ does not feature in either of those authorities. However, in each case all the documents were intended to take effect. It was only the order of execution that was in question. In other words, the documents executed were constituent parts or are necessary elements of that transaction and did not involve any document that was ‘unnecessary’ or surplus to requirements.

24.  The question in the present case is whether the presumption operates at all where one of the 2 documents involved was not ‘necessary’ for the transaction. If, as the plaintiff contends, the Assignment was executed before the Discharge, the Discharge is clearly redundant or ‘unnecessary’ (which is Mr Lau’s view).

25.  If the Discharge was executed before the Assignment then, as Mr CY Li SC, leading counsel for the defendant submitted, the presumption cannot operate because the documents are mutually incompatible. I can see the force of that submission.

26.  As thus analysed, in the scenario predicated in §24 above, it would appear that the presumption is inapplicable.

27.  Mr Lau’s statutory declaration states that the Discharge was

“5. ... in fact not necessary to be executed and created because in this transaction the sale in the Assignment was made by the Vendor as mortgagee in the exercise of its power of sale under the [GMF charge] and pursuant to the Court Order ...

6. Recently, we discovered that due to inadvertence, the Discharge was mistakenly created and registered in the Land Registry in respect of the Property while the same should not be so created and registered ...

7. This is clear that the Discharge was made by a mistake. The Discharge did not reflect the common intention of the parties and shall be null and void ...”

28.  In that connection, GMF was not dissolved until 25 April 2021[3]. The Companies Registry records show that a provisional liquidator was appointed on 15 April 2016. It was thus possible for GMF to have been contacted prior to completion. As regards PTFW, it remains active and Mr Lam is still in practice.

29.  In the present case, evidence could have been adduced as to the order of execution of the Discharge and the Assignment but there is no evidence of any attempt to do so. It is to be noted that the Discharge and the Assignment were executed by different directors of GMF on the same day. As both documents were witnessed by Mr Lam of PTFW, he would be in a position to state in what order the Discharge and the Assignment were executed.

(b) STPW’s mistake

30.  The genesis of the Discharge is clear: the 13 April letter from STPW to PTFW required the discharge of all Schedule II charges (which included the GMF charge). STPW also proposed that they be all dated no later than the Completion Date or undated.

31.  PTFW’s marked up draft preferred the latter and the 13 April letter was amended accordingly. PTFW’s covering letter of 15 April 2015 then gave the split cheques instructions as requested, showing the amounts payable to HSB, FB and GMF respectively as “redemption money”.

32.  Mr Lau acknowledged that his firm presented the Discharge for registration being unaware at the time that the Discharge should not have been created, executed and registered at the Land Registry. In fact, he caused it to be dated 16 April 2015 since all 3 discharges delivered by PTFW to STPW on 27 April 2015[4] were undated as per STPW’s completion letter of 16 April 2021.

33.  Mr Lau who knew of the mistake by 1 April 2021[5] gave no explanation in his statutory declaration as to whether it was a common mistake or a unilateral mistake. The defendant therefore requested that a court order be obtained or more cogent evidence be adduced.

34.  The plaintiff sought to brush aside the criticism that there was no evidence of any attempt to contact GMF and/or PTFW on the basis that PTFW and its client GMF “simply did as what they were told” and the mistake was that of STPW’s alone. If that were the case, GMF/PTFW could have been asked for a simple confirmation. Why was it not done?

35.  The plaintiff’s analysis ignores the fact that the monies paid to GMF were characterised as “redemption money” which has a specific meaning. Clarification by GMF and/or PTFW for adopting that characterisation could have eliminated any doubt arising from the execution and registration of the Discharge. It would also show if the mistake was a unilateral mistake or a common mistake.

Whether the requisitions were sufficiently answered

36.  Even if the view expressed in §26 above is wrong, it is still far from satisfactory to rely on a presumption to decide the order of execution of the Discharge and the Assignment when evidence could have been obtained from persons who were actually present and witnessed the execution of those instruments. As earlier noted, Mr Lau knew of the mistake by 1 April 2021 at the latest (if not on 22 March 2021[6]) but chose not to take steps to clarify the situation.

37.  The Discharge remains a valid instrument, duly registered. Its existence cannot be ignored. Nor could the defendant’s questions be dismissed as “far-fetched and fanciful”.

38.  The same requisitions are likely to arise in any future sale by the defendant who submitted that he should not be compelled to buy a lawsuit. I respectfully agree.

(c) Miscellaneous

39.  A number of minor points were made in the plaintiff’s written submissions but which were not seriously pursued (if at all) at the hearing. A brief mention of the point concerning section 55 of the CPO would suffice.

40.  The contention[7] is that the Discharge only had the effect of discharging the payment obligation with the legal estate remaining with GMF such that GMF could still sell the property to the defendant.

41.  The Discharge is not a simple receipt acknowledging receipt of money but states on its face that it is a “receipt on discharge of a charge” which must have the effect of discharging the GMF charge and releasing the security over the property: see section 56 of the CPO. Its execution is plainly inconsistent with the exercise of the power of sale.

42.  In any event, the PTFW-STPW correspondence on 15 and 16 April 2015 make it abundantly clear that the receipt on discharge to be obtained from GMF was no different from those to be obtained from HSB and FB which were prior charges, the money paid being “redemption money”.

Conclusion

43.  In my view, the plaintiff was unable to give a good title.

44.  In any event, I have no hesitation in concluding that the requisitions have not been sufficiently answered and that the plaintiff failed to prove a good title.

Order

45.  Accordingly, the plaintiff’s summons is dismissed.

46.  There is to be an order in terms of sub-paragraphs (a)-(e), (g) and (i) of paragraph 2 of the defendant’s affirmation with an order nisi of costs (with certificate for counsel) to the defendant, such costs to be summarily assessed and payable forthwith.

47.  The defendant is directed to serve his bill of costs on the plaintiff within 7 days of this Judgment, the plaintiff to lodge her objections within 14 days thereafter and the defendant’s reply (if any) within 7 days thereafter.

48.  The assessment of costs will be done in Chambers.